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Money is anything which is acceptable in settlement of a debt. But, paradoxically, the main asset used to settle debts in modern economies is other debts. After all, bank deposits are liabilities that the banks owe to their customers. Furthermore, we have seen that banks create liabilities against themselves when they make loans to their customers. In so doing, they are exchanging a debt which is not money for one which is money because bank deposits are acceptable in settlement of a debt. In other words, when a bank grants a loan it is effectively buying a debt which is not usable as money - otherwise it would be spent - in exchange for a debt which is usable as money. So why are banks able to create money? The answer is that their liabilities are acceptable in settlement of a debt because everyone has confidence that, on demand, these liabilities can be converted into cash. So long as this confidence is maintained, bank liabilities will always be acceptable in settlement of a debt, and will always therefore be money.
The inverse market demand curve for a good is p = 100? 0.25Q. the inverse market supply curve for the good is p = 20 + 0.55Q. Calculate the equilibrium price and quantity, consumer
Determine the main target of monetary policy Since 1997 'official' main target of monetary policy has been to 'hit' inflation rate target set by government. Though since the o
full oligopoly chapter
The entire market is capture by a single firm which can produce at a constant average and marginal cost of AC = MC = 10. The firm faces a market demand curve given by Q = 60 ? P.
Multiple Expansion We have seen that a single bank in a banking system can lend rupee for rupee with its excess reserves. What is the lending ability of the commercial banking
Consider two consumers, A and B. A and B both want perfect consumption smoothing (c = cf) and both have no current wealth. However, the two consumers have different income streams.
It's been three weeks since you started working for BioMed and there's still no trace of Selwyn. That means you're still BioMed's resident economic expert. Harry the CEO was ple
Instructions For the following 10 questions, consider an economy which is initially in equilibrium without a tax, with P* of $90 and Q* of 10. Later, a tax is put on the market
Consider an economy that produces only three types of fruit: apples, oranges & bananas. In the base year the production & price data are as follows: Fruit
An electrical company audit indicates that motor consumption is 4x106 kWh per year. By upgrading to high efficiency motors a 10% savings can be made. The additional cost for the mo
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